Bundle Up, It's Cold Outside
By Mike Masnick, Tue Jan 04 01:45:00 GMT 2005
With evidence mounting that bundles do wonders for service providers, the next mad dash is to figure out ways to bundle mobile phone service with other offerings.
The idea of bundled voice, video and data offerings from service providers isn't particularly new. It's been talked about as the ultimate offering in the service provider space for years -- though, many have been slow to push into really bundling out of a fear that doing so actually could decrease the revenue they receive for each individual service (along with some difficulties with integrating billing and support across offerings). While the focus had been on wired voice, video and data into the home, the idea of making that triple play mobile wasn't far behind, with Time Warner being the first to position itself as wanting to offer just such a combined bundle, with the mobile phone part coming via an MVNO relationship. Last week a few more details came out when word leaked that Time Warner was in discussions with Sprint to provide the network it needs. Sprint is an obvious choice, given its success in providing the network to most of the other "big" MVNOs in the US to date.
However, there are some other stories showing how bundling is getting a lot more attention, and how mobile connections are likely to play a larger role. While service providers have had some small successes bundling services like Wi-Fi as a churn reducer, not very much has been said about how bundles are impacting the overall market. An interesting case study is Cablevision, the New York-based cable provider, who created a bit of a stir earlier this year by effectively bundling VoIP service for free with its cable TV and cable modem service. The end result has been a tremendous success for Cablevision, increasing subscriptions across the board (especially for the new VoIP service) and significantly reducing churn.
The reduction in churn is the most interesting part of the bundle. While it may bring in less direct revenue per service, it's a recognition that the long term value of a customer who stays is going to be worth a lot more than bleeding customers dry on each individual service offering. Cablevision's success with such an inexpensive bundle is likely to capture the attention of many other players in the market -- many of whom are clearly looking at how mobile service fits in.
In the telco world, providers are mostly unprepared to offer the video component of the triple play. A few have reseller deals with satellite TV players, which are not integrated and are simply a weak approximation until they can lay enough fiber to offer real video. However, the telcos usually have extremely close relationships with mobile operators, and are going to do whatever they can to leverage those relationships to a greater degree.
BellSouth jumped into the game today by announcing its plan to offer a big bundle involving DSL, long distance phone service, Cingular mobile phone service and DirecTV satellite TV all in one. However, BellSouth doesn't seem to be fully embracing the idea that the overall bundle of services should cost less on a monthly basis. This bundle still requires users to pay the full price for all four services -- but then offers a one-time "cash back" reward, rather than ongoing savings. It appears that executives there don't want to admit that bundling also squeezes business models. Part of the problem, of course, is that half of this "bundle" isn't completely controlled by BellSouth. It controls the DSL and long distance, but only owns 40% of Cingular and has a partnership agreement with DirecTV. Those other companies obviously want to get paid, and don't want to be the ones getting squeezed.
Cingular's other parent, SBC, is obviously looking into bundles more seriously as well. The big news from SBC headquarters today was a plan to build a set-top box with 2Wire, that would offer a variety of entertainment services, such as TiVo-like DVR features and "digital hub" features, such as the ability to store, share and access video, image and audio files. However, also buried in the announcement were plans to allow that box to be controlled by a Cingular phone -- showing SBC realizes the need to go beyond just offering these separate services together, but to actually make them work together to do things that weren't possible before.
Other mobile carriers are clearly trying to fill in the gaps. With Sprint and T-Mobile not having close relationships with RBOCs, they've clearly realized that alignment with the cable providers is their way into the bundling party. While Time Warner talks to Sprint, T-Mobile is rapidly positioning itself to work with any other cable company on offering a mobile bundle, either branded as T-Mobile or in an MVNO-style relationship.
Taken together, all of these announcements make it clear that service providers across the range of offerings know that the future is going to involve some aspect of bundling, and the positions and alliances are being staked out now. The battles will take place over the next few years, but it's clear that mobile offerings -- once relegated to the side of the fight, will now be right in the thick of things.